Monetary Policy Report

Summary Report of the Federal Reserve Board RESEARCH LIBRARY Federal Reserve Bank of St. Louis 1~~91999 MONETARY POLICY OBJECTIVES February 21, 1989 Summary of the Report of the Federal Reserve Board 1989 MONETARY POLICY OBJECTIVES Reported to the Congress, pursuant to the Full Employment and Balanced Growth Act of 1978, on February 21, 1989. Contents Section Page Monetary Policy and the Economic Outlook for 1989 3 Monetary Policy for 1989 3 Economic Projections 4 The Performance of the Economy in 1988 6 The External Sector 6 The Household Sector 7 The Business Sector 8 The Government Sector 8 The Labor Markets 8 Price Developments 9 Monetary Policy and Financial Developments during 1988 10 Implementation of Monetary Policy 10 Behavior of Money and Credit 11 Other Financial Developments 12 Monetary Policy and the Economic Outlook for 1989 Overall, 1988 was another year of progress for the By late February 1988, short-term interest rates U.S. economy, marked by further substantial were about 2 ½ percentage points higher than they increases in output and employment and by a sig were early last spring. Long-term interest rates, by nificant improvement in the balance of trade. The contrast, have changed little, on net, over that same dramatic stock market break of October 1987 did period. Although these rates turned up in the spring seem to affect real activity for a time, but the under of 1988, they leveled off over the summer and edged lying strength of the economy soon showed through, down in the fall, even as short-term rates were con and, apart from losses of farm output caused by the tinuing to rise. This behavior of bond yields seems drought, growth proceeded at a relatively strong to have reflected a lowering of market expectations pace throughout 1988. Moreover, the sizable of long-run inflation. employment gains in January of this year suggest that the economy entered 1989 with considerable Monetary Policy for 1989 forward momentum. The commitment by the Federal Reserve to contain Inflation has remained in check into the seventh inflationary pressures is reflected in the Federal year of the expansion. Even so, developments dur Open Market Committee's (FOMC) decisions to ing 1988 were a little worrying, as, for a second lower the ranges for monetary and credit expansion year, increases in prices were somewhat larger than this year. The Committee has set a 3 to 7 percent in earlier years of the expansion. Part of the pres range for M2 growth during 1989 and a 3 ½ to 7 ½ sure on prices in 1988 came in the food area and percent range for M3, reaffirming the ranges estab reflected the influence of drought. However, with lished tentatively in June 1988. These ranges were labor markets tightening, there also was a quicken reduced from those for 1988-a full percentage point ing in the rise of wages and total hourly compensa for M2 and 1/2 percentage point for M3. This tion, which affected prices more generally. signalled the Committee's determination to resist Federal Reserve policy mirrored the changing eco any upward tendencies in inflation in the coming nomic circumstances of 1988. Early in the year, as year and to promote progress toward price stability in late 1987, the Federal Reserve sought to limit over the long run. The monitoring range for growth repercussions from the plunge in stock prices and, in of domestic nonfinancial debt for 1989 was set at particular, to guard against the possibility of a sig 6 ½ to 10 ½ percent, which also is lower than that of nificant contraction in business activity. Pressures on last year. the reserve positions of depository institutions were Despite the deregulation of deposit interest rates, eased a bit further in early 1988, and interest rates M2 velocity has remained very sensitive to changes edged down for a time, extending the declines that in market interest rates over periods as long as a had begun in October of 1987. Growth of M2 and year or more. Depository institutions have been slow M3 was fairly rapid during this period, nearly reaching the upper bounds of the target ranges. A shift by the Federal Reserve toward restraint Ranges of Growth for Monetary and was reflected in a tightening of the reserve market Credit Aggregates 1 conditions that began in late March and continued, (Percent Change, Fourth Quarter to Fourth Quarter) in several steps, into 1989. Short-term market interest rates moved up during this period, influenced 1987 1988 1989 both by the System's tightening and the strength of the economy, and the discount rate was raised in M2 5½ to 8½ 4 to 8 3 to 7 August, to its current level of 6 ½ percent. Growth M3 5 ½ to 8½ 4 to 8 3 ½ to 7 ½ of M2 moderated after the spring and ended the year just below the middle of the 1988 target range. Debt 8 to 11 7 to 11 6½ to 10½ The growth of M3 also ebbed over the last two quarters, as the needs of banks and thrifts to fund credit expansion slackened. 3 to adjust some of their offering rates, causing sub remain near its recent level-the lowest in a decade stantial changes over the short and intermediate and a half. On balance, the FOMC members antici term in the relative attractiveness to savers of pate a little less real growth and a somewhat higher deposits versus market instruments. In these circum rate of inflation than does the Administration, but stances, the appropriate growth of M2 and the other the differences are not large. aggregates in the coming year is difficult to specify Members of the Committee believe that the pro in advance; it will depend on how interest rates are gress of the economy in 1989 will be determined in affected by the economy and prices and on the large measure by developments on the inflation response of depository institutions to any changes in front. Although special factors, such as the drought, market interest rates, both of which are subject to a contributed to price increases last year, there also substantial degree of uncertainty. have been troubling indications-most notably in In 1989, the behavior of M2 and M3 also could recent wage trends-that inflationary pressures have be influenced by the resolution of problems in the become more widespread and, potentially, more thrift industry, depending, in part, on how pricing deeply rooted. practices of these institutions change, the reactions Given the tightening actions taken by the Federal of retail and wholesale depositors in these institu Reserve over the past year and the policy of con tions, and the extent of any restraints on the growth tinued restraint on aggregate demand expressed in of assets of savings and loan associations. the monetary targets for 1989, the members of the Committee anticipate that, if there is any further Economic Projections acceleration of prices from the 1988 pace, it will be quite limited. A particular uncertainty in the infla Board members and Reserve Bank presidents antici tion outlook for 1989 centers on the prospects for pate real GNP will grow moderately in 1989; prices food prices. FOMC members generally assumed that will rise at a pace similar to, or perhaps slightly a return to more normal weather conditions this above, that of 1988; and the unemployment rate will year, together with an increase in acres planted, would lead to a sharp rebound in crop production, Percent change from end of Real GNP previous period, annual rate in which case food prices might help to temper over all inflation. However, because stocks of some key Real Business 6 Percent change from end of Fixed Investment previous period, annual rate lilil Structures D Producers' Durable Equipment 4 30 20 2 10 + + 111111 !!!!!! 1111111 10 1983 1984 1985 1986 1987 1988 1983 1984 1985 1986 1987 1988 4 agricultural commodities have been reduced to low With regard to the external sector, real net levels, there also is risk that another year of drought exports of goods and services declined over the could generate strong upward pressures on prices. In second half of 1988, but most members of the Com the energy area, consumer prices could rise sharply mittee expect some improvement in the months early this year, responding to the runup in oil prices ahead. However, substantial further progress in around the end of 1988. Nonetheless, world oil sup external adjustment will require a continuing com plies still look ample, and members of the Commit mitment on the part of U.S. firms to capitalize on tee are assuming that energy prices will increase the enhanced competitiveness resulting from the only moderately over 1989 as a whole. depreciation of the dollar since 1985. That commit Although the economy clearly has entered 1989 on ment must take the form not only of continued cost a strong note-even discounting the transitory control and price restraint, but also of more intense influence of unusually mild weather in many parts efforts at marketing abroad and investment in new of the country-the members feel that growth soon capacity where constraints are visible. Failure on these will move to a lower trajectory, owing both to the counts would almost certainly leave the U.S. econ general influence of monetary restraint and to a omy considerably less well off over the long haul. number of trends in specific sectors. Government policy can do much to encourage In the business sector, the boom in capital outlays businesses to make the longer-range commitments that was evident in the first half of 1988 has since needed to bring about better balance in the economy abated, and surveys of plans for 1989 point to and to foster longer-run growth. A monetary policy moderate gains in overall plant and equipment directed steadfastly at movement toward price stabil spending. Government purchases are expected to be ity is one critical ingredient. But also crucial is held down by budgetary constraints; defense pur action to bring about further progress toward bal chases, in particular, have been trending lower ance in the federal budget. The Committee has under the influence of cutbacks in real spending assumed that Gramm-Rudman-Hollings targets will authority. Recent increases in mortgage rates likely be adhered to in the fiscal 1990 budget process, but portend some slackening in the pace of homebuild the creation of an environment favorable for eco ing after a surge in the final quarter of 1988. The nomic growth with stable prices requires that fiscal growth of consumption expenditures also should policies be put in place to produce the prescribed begin to taper off from the rapid pace of 1988, as a budget results in the out-years as well. slowing of expansion elsewhere in the economy damps the growth of real disposable income. Economic Projections for 1989 (Percent) 1988 Actual FOMC Members and other FRB Presidents Range Central Tendency Nominal GNP 7.0 5½ to 8½ 6½ to 7 ½ Change, fourth quarter to fourth Real GNP 2.7 1 ½ to 3 ¼ 2½ to 3 quarter: Consumer price index 4.3 3 ½ to 5 ½ 4½ to 5 Average level in Unemployment rate 5.3 5 to 6 5¼ to 5½ the fourth quarter: 5 The Performance of the Economy • 1988 Ill The U.S. economy completed a sixth year of expan The rise in real GNP last year would have sion in 1988. Real GNP rose about 2 ¾ percent over exceeded 3 percent, but for a severe drought-one the course of the year; the number of jobs increased of the worst of this century-that caused huge losses more than 3 ½ million; and the unemployment rate of farm output. These losses accounted for most of remained on a downward course, closing the year at the slowdown in GNP growth that occurred after the 5.3 percent, its lowest level in 14 years. Progress first quarter of 1988. Fortunately, inventories of also was made toward restoring external balance, as farm products had been sizable coming into 1988, the merchandise trade deficit fell sharply. and a drawdown of stocks helped to buffer house The year began on a note of uncertainty. The holds and others from the disruption to output. sharp break in the stock market in the fall of 198 7 In most of the nonfarm economy, the growth of had raised concern that the economy might falter, activity was robust in 1988. Production in the and some signs of weakness did emerge around the manufacturing sector increased 5 percent, nearly start of 1988. By early spring, however, it became matching the previous year's gain, and factory clear that the expansion still had considerable vigor, employment rose sharply. Employment also con coming in particular from rising exports and a boom tinued to grow rapidly in retail and wholesale trade in capital spending. Households, meanwhile, and among the providers of business and health adjusted fairly readily to the loss of stock market services. However, oil drilling, which had turned up wealth, and consumer spending rose at a strong in 1987 when oil prices were rising, experienced pace throughout the year. Toward the end of the renewed weakness in 1988, intensifying economic year, net exports and capital spending softened, but stresses in some parts of the country. there was enough impetus from other sectors to keep real GNP on a firm upward course. The External Sector The rate of inflation, which had picked up in The U.S. external accounts showed considerable 198 7, remained somewhat higher in 1988 than in improvement during 1988. On a balance of pay earlier years. The step-up in inflation in 1987 had ments basis, the deficit on merchandise trade fell resulted mainly from a rebound in the price of oil from an annual rate of $165 billion in the fourth and the passthrough of higher prices for imports. quarter of 198 7 to around $120 billion in the second This past year, by contrast, extra price pressures quarter of 1988 and, on average, remained at that reflected the impact of drought on the price of food lower level in the second half of the year. Over the and, more generally, a widespread pickup in labor four quarters of last year, the value of exports rose costs in the domestic economy. more than 20 percent; adjusted for inflation, the increase was around 15 percent. Annual rate, U.S. Real Merchandise Trade The value of merchandise imports, other than oil, billions of 1982 dollars rose about 7 percent during 1988. The volume of non-oil imports increased about 2 percent. This rise 500 was concentrated mainly in the capital goods area; volume was down for other major categories of . 400 imports. The value of oil imports declined last year, as an increase in physical volume was more than _____________ -- .,,,.---- 300 offs et by a decline in price. __, Exports .,,,.,, 200 1983 1984 1985 1986 1987 1988 6 Foreign Exchange Value of the The Household Sector .s. U Dollar* Index, March 1973 = 100 At the start of 1988, concern about the possible effect of the stock market break on the real economy centered on the household sector. The drop in share values had pared roughly half a trillion dollars from household wealth, and the degree to which spending would be cut in response to this loss of wealth was not clear. In the event, the loss of wealth may indeed have left an imprint on consumer demand. The personal saving rate did rise after the crash and, over the next year, averaged about a percentage point higher than in the year preceding the crash. But, with 1983 1984 1985 1986 1987 1988 exports and capital investment booming, the growth of jobs and real incomes remained strong in 1988, •Index of weighted average foreign exchange value of U.S. dollar in terms of cur rencies of other G-10 countries plus Switzerland. Weights are 1972-76 global and the uncertainties spawned by the crash soon trade of each of the 10 countries. gave way to renewed optimism among households. Real residential investment fell slightly in the first For the first three quarters of 1988, the current half of 1988, but turned up in the second half and, account showed a cumulative deficit of $102 billion, by the fourth quarter, was a little above the level of which was balanced by recorded net capital inflows a year earlier. Starts of multifamily units, which had of $88 billion and a statistical discrepancy of slumped in 1987, fell further in the first quarter of $14 billion. 1988, but then flattened out over the remainder of The foreign exchange value of the U.S. dollar, the year. Vacancy rates for multifamily dwellings which had fallen sharply from early 1985 through remain high in many areas and are likely to hold the end of 1987, has shown wide fluctuations in the down new construction of these units for some time. subsequent period. Measured against the other G-10 In the single-family sector, starts edged down currencies, the dollar currently is up somewhat, on through the first three quarters of 1988, but net, from its end-of-1987 low. However, it has rebounded toward year-end to the highest levels declined in real (price-adjusted) terms against the since the fall of 198 7. currencies of our major trading partners among the developing countries, especially South Korea, Percent of Mexico, and Brazil. Personal Saving Rate disposable income 8 6 4 2 1983 1984 1985 1986 1987 1988 7 The Business Sector On a budget basis, total federal outlays, which are almost three times as great as federal purchases Virtually_ all indicators of business activity exhibited alone, continued to rise in fiscal year 1988, but at a strength m 1988. Business sales, in nominal terms, somewhat slower rate than in most previous years. rose 9 percent over the year. Hiring was brisk in There were further increases in entitlements, greater most sectors, and operating rates rose further. In the ?emands on deposit insurance agencies, and industrial sector, capacity utilization at the end of mcreases in net interest payments. Meanwhile, the 1988 was at its highest level since 1979. Corporate growth of federal receipts slowed in 1988 from the profits remained healthy. rapid pace of the previous year. Receipts from social A surge in business equipment spending that had security taxes rose more than 10 percent-owing in begun in 1987 extended through the first half of part to a rate increase in January of 1988. However 1988, when outlays grew, in real terms, at an growth in receipts from personal income taxes ' annual rate of about 20 percent. The surge was led slowed, as increases in employment and nominal by sizable investment in high-technology items incomes were offset by final reductions in income ~omputers, communication equipment, and the tax rates legislated under the 1986 tax reforms. The like-but outlays for other types of equipment also federal budget deficit in fiscal year 1988 was $155 were strong. Business spending for new construction billion, slightly above the level of the previous year. declined in 1988, reversing the moderate increase of The real purchases of goods and services by state the previous year. and local governments rose 3 percent over the four Inventory investment, which had been sizable in quarters of 1988, a little more than in 1987, but less late 1987, moderated in 1988, and, with sales on an than the average rate of growth over the preceding upward trajectory, stock overhangs were not a prob three years. lem for most businesses. The Labor Markets The Government Sector The rise in the number of jobs during 1988 was somewhat above that of 198 7 and brought the total Budgetary constraints have led· to a slowing of increase in payroll employment since late 1982 to government purchases, both at the federal level and about 18 ½ million. Virtually all parts of the econ among state and local governments. The federal omy shared in last year's gain. The number of jobs government's purchases of goods and services-the part of federal spending that adds directly to the gross national product-fell 4 percent in real terms Quarterly from the fourth quarter of 198 7 to the fourth quar Civilian Unemployment Rate average, percent ter of 1988. Roughly half of the decline reflected a drought-induced reduction in the farm inventories ow?ed or financed by the Commodity Credit Corpo 10 r~t1on (CCC), a reduction that is counted as a nega tive federal purchase. Excluding this inventory 8 swing, federal purchases were down 2 percent over the year-the first decline since 1976. 6 1983 1984 1985 1986 1987 1988 8 in manufacturing increased 400,000; employment in Percent change from end of Consumer Prices* construction was up 300,000. Close to a million new previous period, annual rate jobs were created in retail and wholesale trade, and 1.3 million were added in services. Except for a brief slowdown in the summer, the growth of jobs was strong throughout the year. The tightening of labor markets in 1988 was 6 associated with a pickup in the rise of wages and labor costs. The employment cost index for wages and salaries in the private nonfarm sector increased a bit more than 4 percent over the year-almost a percentage point more than in 1987. Productivity gains slackened somewhat in 1988. The rise in output per hour in the nonfarm business sector over the four quarters of the year was only 0. 7 percent-about half a percentage point below the average over this decade. Price Developments The broader measures of prices-including the GNP price measures, the producer price index, and the 1983 1984 1985 1986 1987 1988 consumer price index-all indicate that inflation was in a range of 4 to 4 ½ percent in 1988. In contrast *Consumer Price Index for all urban consumers. to 1987, when the indexes were boosted by a rebound in energy prices and rising prices for Energy prices were little changed at the consumer imports, the inflationary pressures this past year level during 1988 after a sharp rise in 1987-a pat were augmented by larger increases in labor costs in tern that resulted mainly from the continued gyra the U.S. economy and the drought's influence on tions in world oil markets. The price of oil, which agricultural prices. had risen sharply in 1987, moved lower for much of The drought's effects appeared quickly at the 1988, as the efforts of OPEC to restrain production retail level in the summer, as price increases picked 1 unraveled. up for a wide variety of consumer foods. By late Price increases for goods and services other than autumn, however, the impact of the drought on food food and energy were larger in 1988 than in 198 7. prices began to dissipate, and inflation in the food The pick-up, while fairly moderate, was widespread sector returned to a more moderate path. The and probably reflected, in large part, the past year's increase in consumer food prices over the year as a acceleration in hourly compensation and unit labor whole was 5 ¼ percent-about 2 percentage points costs in the domestic economy. above the average of the preceding five years. 9 Monetary Policy and Financial Developments during 1988 During 1988, Federal Reserve policy continued to Implementation of Monetary Policy be characterized by a flexible approach to monetary During the early months of last year, the Federal targeting, with System actions resp~nding to_ emerg Open Market Committ_ee sought to counter any eco ing conditions in the economy and m financial mar nomic weakness that could result from the stock kets, as well as to growth of the monetary aggre market break and to ensure the smooth functioning gates. This approach has been necessitated by the of domestic financial markets. In addition, special short-run variability in the relation of these aggre emphasis was placed on monitoring domestic finan gates to economic performance, owing primarily to cial markets for signs of any new distress and on their sizable response to changing interest rates, in being alert to the need to alter the provision of addition to spending. reserves quickly in response to any trouble. Growth of Money and Debt (Percentage changes)2 Debt of Domestic M1 M2 M.3 N onfinancial Sectors Fourth quarter to 1979 7.7 8.2 10.4 12.3 fourth quarter 1980 7.4 9.0 9.6 9.6 1981 5.2 (2.5)3 9.3 12.3 10.0 1982 8.7 9.1 9.9 9.0 1983 10.2 12.1 9.8 11.3 1984 5.3 7.7 10.5 14.2 1985 12.0 (13.0)4 8.9 7.7 13.2 1986 15.6 9.3 9.1 13.3 1987 6.4 4.2 5.7 9.8 1988 4.3 5.3 6.2 8.7 Quarterly growth Q1 3.2 6.2 6.8 8.2 rates 1988 (annual rates) Q2 6.4 6.9 7.2 8.7 Q3 5.2 3.8 5.5 8.6 Q4 2.4 3.8 4.9 8.4 10 Based on evidence of a greater potential for higher M2 Billions of Dollars wage and price inflation and in the context of rapid growth in M2 and M3, the Federal Reserve firmed reserve conditions further in a series of steps begin S% 3150 ning in March and culminating in early August with a 1/2 percentage point hike in the discount rate. These moves brought about substantial increases in short 3050 term interest rates, but were accompanied by only small increases in Treasury bond yields, as investors viewed Federal Reserve actions as heading off a 2950 long-term acceleration of inflation. The upturn in short-term interest rates, coupled with more optimis tic expectations of future inflation, helped boost the 2850 foreign exchange value of the dollar during this period. During October and November, the foreign 0 N D J F M A M J J A S O N D exchange value of the dollar declined, partly in response to a rise in foreign interest rates relative to 1987 1988 U.S. market interest rates and to investor concern over the lack of progress in reducing the U.S. fed The composition of the growth of the components eral budget deficit and the slowing improvement in of M2 also responded to changes in deposit rates the U.S. trade deficit. and market interest rates. Yields on liquid deposits In late fall, incoming data suggested that previous interest-bearing checking deposits, savings deposits, monetary restraint had not been sufficient to relieve and money market deposit accounts-changed very the potential for higher inflation and the Committee little over the year. resumed tightening reserve conditions in a series of moves beginning in November and extending into M3 the new year. As a result of these measures, short Billions of Dollars term market interest rates rose. In contrast, bond yields continued to fluctuate narrowly, signalling the market's continued confidence that inflationary pres 4000 sures would be contained. This confidence together with the firming of policy contributed to a strength ening of the foreign exchange value of the dollar. 3900 Behavior of Money and Credit M2 expanded 5.3 percent last year, just below the middle of its 4-to-8 percent target range. Although demands for M2 were supported by strong growth --- - 3700 -- .. in income and spending, they were reduced by ----.. - increases in its opportunity cost-that is, the differ -- --.. 3600 ence between market interest rates and the yields on M2-type instruments. 0 N D J F M A M J J A S O N D 1987 1988 11 Debt BiJ!ions of Dollars As the year wore on, the dimensions of the prob lems facing the thrift industry became clearer. Although industry losses eased in the third quarter 11 % 9200 from their record levels in the first half of 1988, this development appears largely to have reflected FSLIC 9000 assistance transactions during the third quarter, rather than a significant underlying improvement in 8800 earnmgs. 8600 Despite the turmoil in the thrift industry, there has been no noticeable disruption of mortgage 8400 activity. In part, the development of a deep secon dary mortgage market has separated the origination 8200 of loans from the need to fund them. For this rea son, the base of mortgage credit has been broadened in recent years, making the provision of mortgages 8000 far less dependent on the condition of any one type 0 N D J F M A M J J A S O N D of financial institution or on the regional supply of loanable funds. 1987 1988 In contrast to the thrift industry, preliminary data indicate that U.S. commercial bank profits were M3 grew 6.2 percent last year, placing it slightly reasonably strong in 1988. Moreover, most large above the midpoint of its 4-to-8 percent target money-center banks with a significant amount of range. This increase from a 5.8 percent growth in loans to developing countries have continued to 198 7 reflected a modest pickup in the issuance of build capital, which provides a cushion against managed liabilities in M3 to fund credit expansion default losses. Giving added impetus to efforts to at banks and thrift institutions. raise equity was the agreement by bank supervisory The debt of domestic nonfinancial sectors authorities of major industrial countries to set more expanded nearly 8¾ percent during 1988, down stringent, risk-based standards of capital adequacy. from 9 percent in 1987, placing it near the midpoint These standards, to be fully phased in by 1992, of the Committee's 7-to-11 percent monitoring place a greater emphasis on equity capital, take into range. Although debt expansion was well below the account the off-balance sheet activities of banks, and pace of the mid-1980s, it still exceeded nominal provide a more uniform regulatory treatment of GNP growth. banks based in different countries. As in 1987, banks lent considerable sums to Other Financial Developments finance mergers and leveraged buyouts. Although banks have reported that these loans have had a Although the economy continued to grow at a strong lower rate of loss than all other business loans com pace last year and the financial markets recovered bined, and although LBO borrowers typically obtain from their skittishness following the stock market some insurance against higher loan rates, concern break of 1987, financial developments in certain remains about bank exposure to losses in the event markets and sectors warranted the attention of of an adverse turn in business conditions. For this policymakers. Of particular note were the worsening reason, the Federal Reserve is closely monitoring condition of the thrift industry, the need to achieve developments in this area and has just revised its sounder capitalization of commercial banking organi bank examination guidelines to ensure that member zations, and the rising indebtedness of businesses bank loans used to finance buyouts and other highly involved in restructuring activity. leveraged corporate restructurings meet prudent credit standards. 12 Footnotes 1. M1 is currency held by the public, plus travelers' checks, plus demand deposits, plus other checkable deposits [including negotiable order of withdrawal (NOW and Super NOW) accounts, automatic transfer service (A TS) accounts, and credit union share draft accounts]. M2 is M 1 plus savings and small denomination time deposits, plus Money Market Deposit Accounts, plus shares in money market mutual funds ( other than those restricted to institutional investors), plus overnight repur chase agreements and certain overnight Eurodollar deposits. M3 is M2 plus large time deposits, plus large denomi nation term repurchase agreements, plus shares in money market mutual funds restricted to institutional investors and certain term Eurodollar deposits. 2. M 1, M2, and M3 incorporate effects of benchmark and seasonal adjustment revisions made in February 1989. 3. Ml figure in parentheses is adjusted for shifts to NOW accounts in 1981. 4. Ml figure in parentheses is the annualized growth rate from the second to the fourth quarter of 1985. A copy of the full report to Congress is available from Publication Services, Federal Reserve Board, Washington, D.C. 20551 FRB 15-48000-0289 13

Federal Reserve (1989, February 20). Monetary Policy Report. Monetary Policy Reports, Federal Reserve. https://whenthefedspeaks.com/doc/monetary_policy_report_19890221

@misc{wtfs_monetary_policy_report_19890221,
  author = {Federal Reserve},
  title = {Monetary Policy Report},
  year = {1989},
  month = {Feb},
  howpublished = {Monetary Policy Reports, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/monetary_policy_report_19890221},
  note = {Retrieved via When the Fed Speaks corpus}
}